By 2030, Tesla is the dominant player in the market for self-driving cars, but itfaces an entry threat by ACME Corporation. To examine its behavior towardcompetitors, suppose that Tesla produces q₁ and it incurs a cost of c₁ (91) = 69₁.ACME Corporation produces a self-driving car that is a perfect substitute forthe Tesla vehicle, but its production costs are: c₂ (92) = 100+1292. Inversedemand for self-driving cars is given by p(Q) = 120-Q, where Q = 9₁ +92 is the total production by Tesla and ACME Corporation. Suppose that theincumbent, Tesla can credibly commit to a quantity to produce, after whichACME Corporation will choose its own quantity.(a) Find ACME Corporation's reaction function.(b) If Tesla accommodates entry, find Tesla's profit-maximizing quantity andits resulting profits.(c) What is the quantity that Tesla has to produce to deter entry?(d) Will Tesla choose accomodation or entry deterrence?

To find the best response of the given firm we have to find the output of the firm in profit…

(a) Find ACME Corporation's reaction function. (b) If Tesla accommodates entry, find Tesla's profit-maximizing quantity and ts resulting profits. (c) What is the quantity that Tesla has to produce to deter entry? (d) Will Tesla choose accomodation or entry deterrence?

(a) Find ACME Corporation's reaction function. (b) If Tesla accommodates entry, find Tesla's profit-maximizing quantity and ts resulting profits. (c) What is the quantity that Tesla has to produce to deter entry? (d) Will Tesla choose accomodation or entry deterrence?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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